The Board of the Capital Market Authority issued the rules regulating foreign investment in securities, which aim to clarify the provisions regulating foreign investment in listed securities, debt instruments and investment funds.
Here is the text of the rules:
The first Door
A- These rules aim to clarify the provisions regulating foreign investment in listed securities, debt instruments and investment funds.
B- These rules do not prejudice the provisions of the Law and its implementing regulations, including the provisions contained in the Rules for Offering Securities and Continuing Obligations, the Market Conduct Regulations, the Financial Market Institutions Regulations, the Merger and Acquisition Regulations, the Investment Accounts Instructions, the Listing Rules, and other relevant regulations.
C- Foreign investors must at all times comply with the relevant provisions stipulated in the Law and its Implementing Regulations, the Market Rules and Regulations, and other relevant regulations.
D- Without prejudice to what was stated in Paragraph (a) of Article Eight of these rules, these rules do not apply to citizens of the countries of the Cooperation Council for the Arab States of the Gulf.
A- The word “the system” wherever mentioned in these rules means the financial market system issued by Royal Decree No. (M/30) dated 6/2/1424 AH.
B- Without prejudice to Paragraph (C) of this Article, the words and expressions mentioned in these rules shall have the meanings given to them in the system, and in the list of terms used in the regulations and rules of the Capital Market Authority, unless the context requires otherwise.
C- For the purpose of applying the provisions of these rules, the following words and expressions shall have the meanings indicated opposite each of them, unless the context requires otherwise:
Market maker client: a market maker client who engages in market making activities in accordance with market rules.
Licensing Requirement: The licensing requirement stipulated in Article 5 of the Securities Business Regulations.
Foreign Portfolio Manager: A foreign financial institution with a legal personality that manages clients’ assets and deals or intends to deal with a qualified foreign investor for the purpose of investing that person’s money in listed securities.
Qualified Foreign Investor: A qualified foreign investor in accordance with the provisions of Part Three of these Rules to invest in shares listed in the Main Market.
Foreign Strategic Investor: A foreign legal person who aims to own a direct percentage in the shares of a listed company for a period of no less than two years, for the purpose of contributing to enhancing the financial or operational performance of this listed company.
Citizens of the Cooperation Council for the Arab States of the Gulf: natural persons who enjoy the nationality of one of the countries of the Cooperation Council, and legal persons whose capital is majority owned by citizens of the countries of the Council or their governments and enjoys the nationality of one of the countries of the Council, according to the definition contained in the decision of the Supreme Council of the Cooperation Council for the Arab States of the Gulf issued in Its fifteenth session approved by Cabinet Resolution No. (16) dated 1/20/1418 AH.
The Authority may exempt any person from applying any of the provisions of these rules, in whole or in part, either based on a request it receives from him or on its own initiative.
Right of grievance
Any person subject to these Rules has the right to submit a grievance to the Committee regarding any decision or action taken by the Authority in accordance with the provisions of these Rules.
Foreign natural and legal persons, whether residents or non-residents, may invest in listed securities, debt instruments and investment funds, subject to the provisions stipulated in these rules.
A- The investment of non-resident foreigners in shares listed in the main market is limited to the following categories:
1- A qualified foreign investor.
2- A foreign strategic investor.
3- An ultimate beneficiary in a swap agreement concluded with a financial market institution.
4- A natural or legal foreign person who is a client of a financial market institution licensed by the Authority to practice management business, provided that the financial market institution has been appointed on conditions that enable it to take all investment decisions on behalf of the client without the need to obtain his prior approval.
B- The investments of foreign investors are subject to the following restrictions:
1- A non-resident foreign investor (except for the foreign strategic investor) may not own (10%) or more of the shares of any issuer whose shares are listed or convertible debt instruments of the issuer.
2- Foreign investors collectively (of all categories, whether residents or non-residents, with the exception of foreign strategic investors) are not allowed to own more than (49%) of the shares of any issuer whose shares are listed or convertible debt instruments of the issuer.
3- The restrictions stipulated in the articles of association of the listed companies.
4- Any regulatory restrictions or any instructions issued by the competent authorities to which the listed companies are subject.
C- The Market shall publish on its website – as determined by the Authority in this regard – the following information:
1- A statistic that reflects the ownership percentages mentioned in subparagraph (2) of paragraph (b) of this article.
2- A statistic that reflects the ownership percentages of foreign strategic investors in listed companies.
3- The restrictions mentioned in subparagraphs (3) and (4) of Paragraph (b) of this Article, according to the information received by the Market from the listed companies in this regard.
D- A foreign person who invests directly in debt instruments may not convert them into shares listed in the main market unless that person is one of the categories of investors who are allowed to invest directly in those shares, or becomes an ultimate beneficiary in a swap agreement in accordance with the provisions of Chapter Four. of these rules.
e- A foreign strategic investor may not sell any of the shares he owns under these rules during the two years following the date of his ownership of those shares. The financial market institution must not allow any action that would violate the provisions of this paragraph.
F- The provisions of this article do not apply to the investments of foreign investors (of all categories, whether residents or non-residents) in the shares of the foreign issuer whose shares are listed in the main market.
Qualified foreign investor investment in shares listed in the main market
A- For a foreign investor to be a qualified foreign investor to invest in shares listed in the main market, the following qualification conditions must be met:
1- That the person has a legal capacity.
2- That the value of the assets that he or his group owns, manages, or maintains when applying for an investment account is (1,875,000,000) one thousand eight hundred and seventy-five million Saudi riyals or more (or its equivalent), and the Authority may reduce the minimum limit for these assets.
B- The condition mentioned in subparagraph (2) of paragraph (a) of this article does not apply to the following categories:
1- Pension funds whose main objective is to collect periodic fees or subscriptions from or for the benefit of its participants; for the purpose of compensating them for that according to a specific mechanism.
2- Endowment funds whose main objective is to provide grants to organizations, institutions or individuals for scientific, educational and cultural purposes, including university endowment funds.
3- A client of the market maker, provided that the financial market institution verifies that the investment account is for the purposes of market making.
4- Government agencies, central banks, and investment funds wholly owned, directly or indirectly, by a government agency, including sovereign funds and funds that take the form of pension funds and endowments.
5- International organizations of which the Kingdom is a member and their affiliated institutions.
The qualified foreign investor dealt with financial market institutions and foreign portfolio managers
A- A qualified foreign investor may deal with financial market institutions, foreign portfolio managers, foreign custodians, or foreign advice providers; This is for the purpose of investing in listed securities.
B- The qualified foreign investor is excluded from the requirement of licensing to practice the dealing activity, when dealing in his capacity as a principal in the listed securities.
C- A qualified foreign investor and a foreign portfolio manager are excluded from the licensing requirement to practice management activity when they manage listed securities belonging to a qualified foreign investor.
D- Foreign custodians are exempted from the licensing requirement to practice custody activity when they hold listed securities belonging to a qualified foreign investor.
E- Foreign advice providers are exempted from the licensing requirement to practice the activity of providing advice, when providing advice to a qualified foreign investor.
Non-resident foreign investment in listed securities through swap agreements
Terms and requirements for concluding swap agreements
Financial market institutions are allowed to enter into swap agreements with foreign counterparties only for the benefit of non-resident foreign investors; This is for the purpose of transferring the economic benefits of securities listed in the market to these investors in their capacity as the final beneficiaries through swap deals executed under swap agreements, in accordance with the following conditions and requirements:
1- The funds and assets of the final beneficiary are considered the funds and assets of a client in accordance with what was stated in the Capital Market Institutions Regulations, including the provisions that required the separation of the client’s funds and the client’s assets from the funds and assets of the financial market institution, and stipulated that the creditors of the financial market institution do not enjoy any right in any claim or receivables in the funds or assets of customers separated.
2- The financial market institution may not conclude any swap agreement or execute any swap transaction in which the final beneficiary is any of the following parties:
A- A qualified foreign investor who has an investment account in accordance with the investment accounts instructions.
B- Citizens of the Cooperation Council for the Arab States of the Gulf.
C- Foreign investors residing in the Kingdom.
D- A foreign person other than the categories mentioned in subparagraphs (a), (b) and (c) of Paragraph (2) of this Article who owns securities of a company listed in the market, in connection with executing swap deals that include shares or transferable debt instruments. for the same listed company.
3- All orders for the execution of swap transactions must be submitted to the financial market institution by the foreign counterparty only or by a third party authorized by the foreign counterparty.
4- Any swap agreement concluded by the financial market institution must include a clear text that grants it all voting rights related to the shares subject of the swap deal executed under the swap agreement, without there being any voting rights given to the foreign counterparty or the final beneficiary.
5- The financial market institution that concludes a swap agreement is prohibited from exercising any of the voting rights associated with the shares subject to the swap deals executed under the swap agreement.
6- The financial market institution that intends to conclude a swap agreement must be licensed by the Authority to engage in dealing activity.
7- The financial market institution must ensure full compliance with the requirements stipulated in the Anti-Money Laundering Law and its Implementing Regulations, and any other related laws.
8- All swap deals must be fully covered throughout the swap agreement period by purchasing the securities subject of the deal.
9- The financial market institution must have sufficient control mechanisms and procedures to ensure the implementation of the terms and requirements of swap agreements and verify their validity.
10- The financial market institution must buy and sell the securities subject of swap transactions through an investment portfolio in its name at the Depository Center. Such investment portfolio shall include an indication that its purpose is to carry out swap transactions under the swap agreement, and an indication of the name, nationality and identification data of the final beneficiary.
A- The Authority may, at its sole discretion, compel any of the financial market institutions to stop concluding swap agreements, or set any limits, restrictions or requirements related to swap agreements concluded by the financial market institution, the foreign counterparty or the final beneficiary.
B- As an exception to subparagraph (a) of paragraph (2) of Article 9 of these rules, the financial market institution may continue executing swap transactions for the foreign investor who is accepted as a qualified foreign investor for a period not exceeding twelve months from the date of opening an account with the Depository Center as a qualified foreign investor.
These rules shall be effective in accordance with the decision to adopt them.